Hard money loans are backed by the value of the property, not the credit worthiness of the borrower. As a result, hard money loans have lower loan-to-value ratios than traditional loans, and typically have a higher interest rate than most other forms of financing.
Hard money loans are usually used by real estate investors on a short-time basis, perhaps while rehabbing an investment property or securing longer term financing. Though the interest rate is higher than other types of financing, it allows investors to purchase investment property, rehab it quickly, and make a profit.
Different from private money loans, hard money loans are given by professional lenders rather than relatives, friends, co-workers, and networking contacts.
Positives and Negatives of Hard Money Loans
Hard money loans are awarded based on the value of a property, and there are usually no credit requirements for these loans. As a result, a hard money loan is more expensive than a traditional mortgage, usually with higher origination fees and an interest rate twice as much as a regular mortgage.
Despite significant disadvantages, hard money loans serve a very useful purpose. Real estate investors use hard money for short-term cash injections to invest in real estate projects. As a result, hard money enables savvy investors to do more deals and make higher profits every year.
Uses of Hard Money Loans
Hard money loans are usually used by real estate investors for a short time, perhaps while rehabbing an investment property or securing longer term financing.
Real estate flippers often use hard money to help finance a flip. Though the interest rate is higher than other types of financing, a hard money loan allows investors to purchase investment property, rehab it quickly, and make a profit.
Hard money can also be used in place of a “bridge loan” to free up funds to pursue further investments. And hard money can be used to purchase and repair investment property that cannot be traditionally financed until after repairs are complete.
Experienced real estate investors use short-term hard money loans to quickly grow their real estate business, resulting in higher overall profits.
Where to Get Hard Money Loans
Conventional lenders don’t offer hard money loans. Rather, private investors and private institutions usually finance hard money loans. If you need a hard money loan, pursue networking connections with real estate professionals to learn about hard money lenders. Or, use an online resource like the Scotsman Guide.
Graystone Investment Group
Graystone is an experienced Investment Group, wholesaling properties in the Greater Tampa Bay market. Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.